MNI 5 THINGS: German Factory Orders Look Set For July Rebound

By Jaspreet Sehmi

     LONDON (MNI) - After recent strong survey indicators, prospects for the

German economy in H2 have brightened. However, July factory orders - due for

release Thursday - will provide one of the first glimpses into the actual

performance of the German economy at the start of the second half of the year.

In June, seasonally-adjusted factory orders fell sharply (-4.0% m/m; -0.8% y/y).

Median consensus projections point to improvement in July, with a 1.8% monthly

uptick expected to result in a 1.9% annual gain.

     Ahead of the release, we highlight five points for your attention:

     - Poor Showing For Consensus Estimates In July: MNI's analysis of actual

vs. consensus historical data shows forecasters tend to be overly optimistic

when it comes to projecting July factory orders. Over the past ten years, the

actual m/m data has undershot the median projection on seven occasions (by an

average of 1.0pp). An upside surprise has occurred just three times over this

period, with actual data overshooting consensus by an average of 2.5pp. However,

this is heavily skewed by a 5.2pp underestimate in July 2014, which if excluded,

leaves the average upside surprise at a much lower 1.2pp. Given the monthly

volatility of the series, and the fact that June's downturn was relatively

sharp, we expect a positive print in July, even if our actual vs. consensus

historical analysis suggests that the outturn could be weaker than the 1.8%

expected by analysts.

     - Despite Recent Softness, Orders Remain At Historically Robust Levels:

Despite a declining trend since the start of the year, factory orders are still

at healthy levels, far above both series and recent averages.

     - Across The Board Sector & Geographical Weakness In June: The sectoral

split shows that declines occurred in all major categories in June, with

consumer and investment (capital) goods orders more-or-less unwinding their May

spikes of approximately equal magnitude. Adding to the comprehensively weak June

picture, both domestic (-2.8% m/m) and foreign orders (-4.7% m/m) slumped, the

latter driven primarily by weaker non-Eurozone demand.

     - VDMA Orders Offer Some Encouragement: Data released Wednesday by

Germany's VDMA industry association showed that July machinery orders rose by 3%

y/y. As this data is only available in non-seasonally adjusted y/y terms, it is

not easily comparable with the factory orders statistics, given that base

effects leave it subject to large swings. Nevertheless, on the less volatile

three-month comparison, machinery orders climbed 5% y/y during the May-July

period, providing some encouragement for a positive outturn in July's factory

orders.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

[TOPICS: MAGDS$,M$E$$$,M$G$$$,M$X$$$,M$XDS$]